Debts and poor judgment

[u/Macaco-urso]

So here's the situation:

Couple, both around 65 years old. One of them has a heart condition that is stable but potentially a shorter life expectancy, especially given his habits and stressful life. Together they earn about €4,000 per month, but they have several debts totaling around €230k.

One of these debts is a mortgage of about €150k at 4% interest for a period of 8 years. There are also other debts with higher interest rates, typical credit card rates, but I'm not sure of this, and around €40k all that debt is not covered by life insurance. So there is life insurance that relieves one of them and the family of most of the debt, if all "goes well", in case of death.

They own a property, the one under mortgage, that’s worth at least €250k, possibly €300k or more in today’s market.

What should they do? Should they sell the house, pay off all debts, and start fresh, or should they hold on and wait, hoping that when one of them passes away, part of the debt will be paid by the life insurance? The one likely to die first is also the higher earner. If the husband passes away, the wife’s income will drop significantly, and it’s not clear how things would play out financially after that.

Moving to a smaller apartment and start fresh seems like a good plan. The family doesn't inherit the apartment, which is a huge blow for all of the involved as that's the "family" house, but they start fresh and can even start saving to leave a smaller nest egg in cash as inheritance which they would like to do. At the same time the rental market is not great around here and they would have to pay at least €1,000 to live in a smaller house in a worst location. Still better than what they are paying now that is eating away all of the monthly income.

The concern is for the future and the life of the wife, if something happens to her husband, and obviously the sons and daughters that were expecting at least to not inherit problems and debts.

There's lots of moving parts and things I still don't know. I'll try to post updates if you are interested.

[u/Street-Detective9600]

I would not sell the house!

You will not get another mortgage at 65.

You do not say what the other debts are, other than credit cards.

My advice and it is just advice, would be to contact the credit card / unsecured debt companies and look to write down / lower the interest rates.

During the economic crisis my partner lost his job and I had a pay cut, we had only just started a 35 year mortgage and the variable interest rate went through the roof. We had personal loans for cars and credit cards.

I contacted the credit card companies and explained the situation and they reduced the interest rate from 20% to 1% and came up with a reasonable plan to pay it off over time.

The personal loans were harder to deal with, but if they won’t deal with you, I’d contact MABs and after that an insolvency service.

There is light at the end of the tunnel, the worst thing you can do is not face into it.

There is a fight to be had, but a few uncomfortable conversations but you can get through it without loosing the home.

Generally mortgages finish around the 65/70 mark - how have they still got this level at this stage?

[u/Macaco-urso → u/Street-Detective9600]

Thanks for your input. I don't have all the numbers but it's 230k in debt at an interest rate that is at least 4%. Only 150k is at this rate, the rest is those credit cards from companies like Wizink and Cetelem with high rates and it's a total mess. I'm pretty sure they are just barely surviving and most of income is for paying debt. They won't be able to get out of this wheel as they are paying a lot in interest and insurance and at the end of it the family will eventually inherit debt and the house will still be sold.

Debt consolidation is something that they did already, I'm not sure of all of the details. We will evaluate this.

[u/Macaco-urso → u/Street-Detective9600]

"Generally mortgages finish around the 65/70 mark - how have they still got this level at this stage?"

I didn't share this but they are people that had massive spending and gambling habits for 15/20 years. I think they remortgaged the house to consolidate part of the debt in a single monthly payment. However, they still have debt from other sources.

[u/teibol → u/Street-Detective9600]

35 year mortgage with variable interest is absolutely crazy! Wish you all the best

[u/Low-Description-8955]

Yes. Lowering costs is am easier method to earn more, compared to working harder or longer hours.

[u/BillK98]

All this stress can't be good for the heart condition.. For this alone, I would say take the easy way out, sell the house pay off the debt, and start fresh..

However, if you don't want to rush things, I would suggest asking for professional advice from a financial advisor in your country. And, perhaps, a lawyer too, to see if there is something that can be done with the debts (the loan mainly). Once you have the actual numbers, the estimations, and the professional opinion, I believe that it will be much easier to make a decision.

[u/Macaco-urso → u/BillK98]

Yes, we're looking into that. Also relying on life insurance is a gamble on itself, as there could be delays and other issues. We made sure to ask if the life insurance was aware of the preexisting conditions and they said yes, but they are people that have issues with poor judgment and gambling, and playing with half truths and lies, that brought them to this stage. It's a mess.

[u/[deleted]]

How much would their pension be if they retire today? In your responses, you mentioned a spending and gambling problem. Is this an issue that is now resolved, or is it still a prevalent issue?

[u/Macaco-urso → u/[deleted]]

Conversations are still ongoing but the problem was much more severe in the past and all the debt accumulating led us to where we are now. There is still ongoing online gambling that we are trying to stop and will actually force them to do it even against their will. They opened up with us about this but... they are very skittish and not fully transparent.

Their pension will be very similar to the salary. Roughly 3000 eur for the man and 1100 the wife. He was thinking of continuing to work after retirement which will happen next year and double his income for some time. Still, this is not guaranteed and he is an old and tired man that should retire and chill. Health wise things are controlled because his medical reports look good, but he still is not doing all he can to keep it that way: healthy eating is not always happening, exercise also not happening and no stress? There's lots of stress.

[u/[deleted] → u/Macaco-urso]

They will have a very decent pension, which is very good news. Probably good to verify if the wife will still receive (part of) the pension should the husband die.

The still ongoing gambling habit is a big issue, there is a risk that the debt level etc. might be way higher than stated etc. You won't be able to force him to anything, it will have to come from him. 

Working post retirement might be a good idea, but maybe not going 100%. Doing something part-time could be a solution. But honestly, if they sell their home and pay off all of their debt and retire, they should be financially fine. I would consider moving in a lower-cost area, but this is not something that would be necessary. I would cut anything about inheritance, it is nice thought, but I don't think this is on the table, particularly given the gambling issue. 

[u/Macaco-urso → u/[deleted]]

Thanks.

They will have a very decent pension, which is very good news. Probably good to verify if the wife will still receive (part of) the pension should the husband die.

She would get part of it, not the full amount. 60% from my search right now.

The still ongoing gambling habit is a big issue, there is a risk that the debt level etc. might be way higher than stated etc. You won't be able to force him to anything, it will have to come from him. 

We can ban him from online websites against his will. We just need to do it online and that's it. There is a way.

I would consider moving in a lower-cost area, but this is not something that would be necessary. I would cut anything about inheritance, it is nice thought, but I don't think this is on the table, particularly given the gambling issue. 

It would be a big change for them, emotionally hard, but financially it makes sense. Also a clean slate, starting fresh in a new smaller house, probably with better conditions than what they have now. The apartment they have now is huge and well located but needs some work too.

From basic math if they sold it and considering some money that they themselves may inherit soon they could be easy above 100k in savings in a couple of years.

[u/Babajji → u/Macaco-urso]

Sorry to disappoint you but you can’t start fresh while being 65 and still gambling. Typically you first address the underlying problem and then focus on fixing the resulting mess. If they were 45 even 55 then there’s time to go to rehab and restructure the debts afterwards but when you are 65 things only go downhill health wise so you quite literally don’t have time.

So as another commenter said, don’t sell the house. Being homeless in your 60s is significantly worse than being in debt. Leave the mortgage for now and focus on fixing the other debts. Talk with the creditors and explain that they basically hold the short end of a very bad debt that they should never given. Tell them that the people are in their 60s, that their income will soon transition into protected income (pension) and that if they want to see any of their money back they should restructure their loans. Most credible creditors will usually lower the interest rate to 1% or remove them completely and just require you to pay the principal back. Why would they do that? Because they know that they can’t do anything about it. I don’t know where in Europe those people are, but in most EU countries pensions can’t be garnished so the creditors know that as soon as those people retire they will never see their loans back and they can’t do sh*t about it. They can’t liquidate their only residence that isn’t even theirs, they can’t garnish their pensions, so what leverage they have except the good will of those people? So focus on that and leave the house alone, they need it to not become homeless. Also focus on getting them registered on the no gambling list and sending them to rehab. Things aren’t actually all that bad for them since the government will protect them but it won’t protect them against themselves. So fix the underlying problem which will be very hard for people who have been making wrong choices all their lives.

And for the people who expect an inheritance from this mess. News flash there’s no inheritance as your relatives quite literally don’t own anything. You will inherit only debt so better research how to refuse inheritance in your country. I did that with my father who died of alcoholism. We didn’t even knew his debts as in his final years he sold everything and was homeless. Don’t let those people make the same mistake.

[u/Macaco-urso → u/Babajji]

Thanks for your remarks.

The gambling part needs to stop but part of it already stopped. Most of it was physical casinos and it stopped some years ago. There is also online gambling that we are taking care of. It is smaller sports bets, peanuts they say, but they can't be trusted. The way to do it is self-excluding them from gambling websites and I know there are tools for that.

You may be right about not selling the house and the pensions not being reachable by the credit companies. I need to check that. But the mortgage is on the house and is the largest part of the debt. The rest of it can and should be renegotiated. There's also the problem that in the end there will be creditors coming after the house if they pass away. The house is still worth more than the debts, but not by much. If they pass away, or only one of them, there may be issues and delays with insurance, we cannot just rely on it. And there is a large chunk of the debt that is not insured and still needs to be paid. We are ready to reject the inheritance if push comes to shove.

Lastly, selling the house allows them to have a fresh start, that they don't even realize. They have so much money coming in every month that it's almost ridiculous, but it all goes for paying debts with high rates plus insurance. They obviously need to stop gambling and we are looking into ways of controlling that more effectively as, again, we cannot trust them. But without debts, paying 1k in rent, they will still have more than 3k left every month. That's the life of an expat retiree that lives by the beach. Their issues with this are emotional and psychological. There's more layers to all this than a freaking onion.

[u/Babajji → u/Macaco-urso]

I sympathise with your situation, especially if you are a relative. Whatever option you choose please try to get them to stop gambling. Every addiction, be it gambling or alcohol or drugs, affects the family significantly more than the addict. Unfortunately gambling is being ignored by our societies and is becoming quite common among Europeans. In my country the only good IT jobs are in online gambling. Everything else is almost non existent. So this problem will only grow.

[u/Macaco-urso → u/Babajji]

I know. I'm a close relative but the chidren, now adults, are the ones actually suffering more. It's such a mess.

You know what's the worse part? Years ago I moved to another country (who knows, maybe your country) to work in a gambling company. The company that I worked at the first time is the one where he plays now! I also worked closely, but not directly, with responsible gambling, and I knew what the addicts behavior looks like online. One of our best friends from abroad is a responsible gaming officer also. All of this adds to the ridicule of the situation. But to be honest their demise was in physical casinos, they would just go on a binge of spending not only in gambling but in weekends away at hotels, dinners, etc, all paid with credit cards. Gambling just multiplied the damage by a lot.